Paycheck Protection Program (PPP):
What can I spend my PPP money on?
Payroll – must spend 60% of funds on covered payroll. In addition to Covered Occupancy costs (rent, utilities, mortgage interest):
- Covered OPEX
- Covered Suppliers
- Covered property damage
- Covered worker protection
This applies to PPP1 as well! Go back and review expenses beyond covered amounts.
Can I get a PPP2 loan if my PPP1 loan has not been forgiven or if I receive partial forgiveness?
Yes, as long as you spend the full amount of PPP1 on eligible expenses (above).
What should I spend my PPP money on and also receive 100% forgiveness?
There is an opportunity for eligible businesses to receive PPP money AND claim an employee retention credit which was not previously allowed under the CARES Act. However, you cannot use wages paid for and forgiven by the PPP to claim the ERC. If you also qualify for the ERC, spend 60% on payroll and claim the ERC on wages paid beyond that point, the 40% can be spent on almost any operating expense.
Additionally, companies who obtain a PPP loan may also apply for the Shuttered Venue Operators Grant. <<Click to download our SBA Eligibility Matrix>>
Lastly, the covered period begins on the date of loan disbursement and can end any date between 8 and 24 weeks.
How do I apply for forgiveness?
Retain your payroll records, bank statements and invoices for covered expenses. As of 12/27/2020, loans of $150,000 or less may use the 3805S form – which requires significantly less documentation.
Where did we land with taxability of the PPP?
PPP money is not taxable at the federal level. Additionally, a borrower’s tax basis in assets and other tax attributes such as available credits will not be reduced because of any PPP loan forgiveness. State tax laws very by State. California excludes forgiven loans from income, but disallows expense deductions for expenses paid for by a forgiven PPP loan. Assembly Bill 281 was introduced in the Legislature in attempt to conform State law with Federal law.
If businesses have received a PPP loan, and it’s forgiven, their best bet is to go on extension to wait and see what happens with the state, rather than filing and then having to go back and amend the return. For more information, speak with a CPA.
When is all this due?
PPP2 Applications –May 31, 2021
PPP1 Forgiveness – 10 months after end of covered period (If covered period ended 10/31/2020 – due by August 2021)
What to look out for with PPP2 applications?
Gross receipts reduction calculation – PPP2 eligibility requires that you must demonstrate a 25% reduction in gross receipts (all income brought in by the business AND its affiliates) in any one quarter in 2020 compared to 2019. Calculation, preferably using an income statement, must be certified in wet ink by the business owner. Affiliate business gross receipts must also be included in the quarterly comparison.
Possible INCREASED scrutiny of applications and/or more comments/additional requests from the SBA.
Note that if you use the same bank to apply for PPP2 as you did PPP1, they may rely on the support you provided for the first draw in evaluating a second draw.
Sole Prop/1099s – Can I get a PPP2?
Yes, gross receipts reduction still applies for eligibility. Recent updates allow I/Cs to use gross income in the calculation for the maximum loan amount as opposed to net income reported on Schedule C.
Employee Retention Credit (ERC):
It is to my understanding I can take qualified health plan expenses as qualified wages; what do these constitute?
They are dictated by Section 5000(b)(1) of the Internal Revenue Code (IRC). Dental, medical, vision. https://www.nixonpeabody.com/en/ideas/blog/benefits/2020/04/13/valuing-health-plan-cost-for-coronavirus-covid19-related-employment-tax-credits
If I was an eligible employer in one quarter of 2020, at what point can I become ineligible?
Once revenues have increased to 80% of what they were for the same quarter in 2019 (have to be down by more than 20%).
Are there any limits to the credit? Does refundable mean it’s money in the bank?
For a given quarter, if the amount of the employer’s share of social security tax paid is greater than the ERC for the same employee, the ERC is nonrefundable for that quarter and reported on Line 18 of Form 941-X.
There is a $10,000 qualified wages cap in 2020 for each employee; since the credit is 50% of qualified wages, there is effectively a $5,000 cap per employee on the ERC (refundable or otherwise).
If one of my kids is an employee, can I use their wages for the ERC?
Related individuals cannot have their wages used. C Corp and S Corp owners are able to take their wages (provided they are not 50% or higher owners), but family members can’t. Bear in mind attribution rules (e.g. if you and your spouse each have a 30% share, constructively you own 60% and thus can’t use your or your spouses wages as qualified wages for the ERC).
SBA 504 Loan:
What is the SBA 504 loan program?
- Long term financing for major small business purchases, such as buildings or machinery
- Available from Certified Development Companies (CDCs), who are regulated by the SBA. To get a SBA 504 loan, you work with a CDC
- Actual loan is held in part by the SBA, and in part by a cooperating bank
Why is the SBA 504 an attractive financing option right now?
The stimulus bill passed in late December 2020 sweetened the SBA 504 program in the following ways:
- Permits refinancing of existing mortgages on commercial property
- Some reduction of loan fee
- Originally promised 6 months of free payments, but that has been reduced to three months of payments covered by the SBA
- On top of this, in some areas, more commercial property, especially office space, is up for sale
- Note that funding for the expansion of the SBA 504 program is limited
Who should consider buying commercial property with the SBA 504 loan program?
Everyone! Each of you should consider your current needs for office or warehouse space. Buying property is an excellent way to build wealth, since your payments build equity. Since interest rates are currently low, and the SBA portion of the debt is a 25-year fixed rate loan, you may find the payments for your space are lower than your current rent expenses. This is worth exploring.
Who can qualify for the SBA 504 loan program?
- US citizens or green card holders buying property or refinancing property anywhere in the United States
- Must operate a for-profit business, with average net income over the last 2 years below $5M after taxes
- Qualification will lean on actual and forecasted business cash flow, the appraisal of the property, and your personal financial position and guarantee on the loan.
How do I get started?
- Click here to access a basic starter application checklist from a local CDC. Reach out to us if TGG can help with building a forecast, reviewing your financials, or walking you through the application process.
- Contact your broker to browse relevant properties since you’ll need to apply for the loan with a property value and type in mind.